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Sweden boosts rescue package for private banks

Sweden's central bank said it would step up loans to the country's cash-strapped banks amid rising turmoil in global money markets. Iceland and Denmark are finalising their own rescue packages to shore up their struggling banks.

Sweden's central bank said Monday it would increase the amount of additional money on loan to the country's cash-strapped banks to help keep credit flowing amid the global financial crisis.

"Given the international financial turbulence, the Riksbank has decided to lend more money to the banks," the central bank said in a statement, adding that "the Riksbank is prepared to supply the liquidity needed in the Swedish financial system."

The bank said it had decided to raise the additional lending amount of 60 billion kronor announced last Thursday to 100 billion kronor (10.3 billion euros, 13.9 billion dollars), and that another auction of 100 billion kronor would take place on Wednesday for six-month loans.

"This means that together with the earlier actions taken, the Riksbank will in total be supplying the bank system with 354 billion kronor," it said.

Last month, the Swedish National Debt Office decided to issue up to 150 billion kronor in additional treasury bills to satisfy soaring market demand for safe investments.

The central bank, which has repeatedly stressed the healthy state of the Swedish economy, said "the international financial turbulence is now clearly affecting the financial market in Sweden, Swedish banks and other financial market participants."

"Swedish banks have plenty of capital and limited loan losses, but the markets for long-term credit are functioning less efficiently," it said.

"If this continues, there is a risk it will have negative effects on the credit supply for banks, companies and households in Sweden."

In neighbouring Denmark meanwhile, the struggling banks reached a deal with the Danish government overnight to Monday in which it agreed to inject 35 billion kroner (4.69 billion euros, 6.38 billion dollars) into the sector over the next two years.

The money will be placed in a fund to help troubled financial firms and banks and to guarantee client savings, Minister for Economic and Business Affairs Lene Espersen announced shortly after midnight.

In Iceland, the government was reported to be preparing to announce its own bank rescue plan, after it last week acquired 75 percent of the country's third largest bank, Glitnir.

Iceland is particularly vulnerable to the worldwide financial turmoil since its financial sector represents such a huge part of the icy island's economy -- eight times the Icelandic gross domestic product.